By Research Desk
about 2 years ago


By Ruma Dubey


Ho hum hah! Yawn…

That was the non-event event for which the markets had remained on tenterhooks. As expected and as stated by us yesterday itself, Janet Yellen did not hike the interest rates. It continues to remain near zero.

But the good news this time is that maybe, just maybe, the Fed might have indicated that December could be the time when rates could go up, finally. The inference drawn is that the Fed is now not as concerned as it was earlier about the turbulent financial markets and uncertain economic developments across the globe. Fed officials hinted that the next meeting, scheduled for 16th December is the  time when they would be assessing whether it was finally time to raise rates.

To be more specific, the Fed said in its statement, “In determining whether it will be appropriate to raise (interest rates) at its next meeting, the (Fed) will assess progress-both realized and expected-toward its objectives of maximum employment and 2 percent inflation.”

But on reading this, once again one cannot help but feel this utter sense of frustration – why can’t the Fed be more specific and define December as the time rather than continue keeping the world in times of uncertainty. In fact this whole of 2015 has been all about will it or wont it. And even now when the year is coming to an end, the Fed is still only assessing? So the uncertainty continues and we can now wait for 16th Dec as domestically we lack new triggers.

A quick look at the highlights of the Fed statement:

  • To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate.
  • In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation.
  • The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.
  • When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.
  • The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Frankly this statement of today, might have as well been a copy-paste of previous statements! It all sounds, “Oh so familiar!”

There is another talk going around – The Bank of England is also dilly-dallying exactly like the US Fed for the past 7 years about hiking its rates. Maybe now, maybe later, like the Fed, nothing is happening. And in the midst of all this, the European Central Bank (ECB) is pumping money into the system and till it does that, it is virtually impractical for any central bank to hike rates as it could cause complete havoc in the currency markets. Less than a week ago, President Mario Draghi of ECB primed investors for an expansion of quantitative easing and the possibility of another cut in the deposit rate. And now the pressure is mounting on him to unveil a new stimulus. In this scenario, if ECB does do that, how will fed hike rates? So wait for the cue from the Bank of England – it is scheduled to hold its monetary policy meet and announce a rate decision on 5th Nov. All eyes now on the 5th…

For the Indian markets tomorrow, it will be just another day. It will be back to company and result specific news.

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